I am pleased to announce that the launch of a campaign challenging presidential candidates to address one of our nation's most pressing issues: our skyrocketing national debt.Today, we launched a new website, "Truth in 2008," designed to spread the truth about Washington's "dirty little secret," otherwise known as our nation's massive debt and skyrocketing liabilities.You can check out the site at www.truthin2008.org.

Truth in 2008 aims to reframe the debate about our nation's finances, challenging presidential hopefuls to address an issue that many would prefer to ignore.Over the next few months, we'll be adding features and content to the site, as well as soliciting contributions, videos, and content from users.We're excited about the project, and hope you are too.

As you know, America is facing a financial time bomb, and the clock is running out. Our nation faces more than 58 trillion dollars in unfunded liabilities, and no one knows how we're going to pay for it.Politicians, meanwhile, want to sweep this issue under the rug.We created Truth in 2008 to stop that from happening in the upcoming elections. We're hoping that the site will help to spread the word about this important issue—and we need your help.Send the link to friends, family, or colleagues who care about this issue, and spread the word!

If you're interested in getting more involved in the campaign, or if you have any questions, feel free to contact me by e-mail or at 847-835-5200.

**Unfortunately, Treasury has not told us what their bills are yet, so we can't determine the true deficit number now. For FYE Sept. 30, 2006 Treasury told us the budget deficit was $248 billion, but once they told us the balances of their bills and how they owed retirees, we calculated the true deficit to be more than 16 times that number, $4,571 billion. That's $4.571 TRILLION. This means your share of our national debt went up by $14,000 in one year. At that point your share of our national debt was more than $176,000.

The Federal Accounting Standards Advisory Board (FASAB or the Board) is in the process of deciding if the long term commitments for Social Insurance programs, including Social Security and Medicare, should be recorded as liabilities on the Federal balance sheet. FASAB’s chair, Tom Allen, stated, “This is the single most important standard that this Board, or any other standard setting body, will deal with.”He commented, "This is our time in history to make a difference."

This Social Insurance project began more than four years ago, when the FASAB sponsors expressed an interest in revisiting whether these commitments should be recorded as liabilities.Statement of Federal Financial Accounting Standard 17 (SFFAS 17), issued December 1999, calls for a social insurance liability in the amount of benefits that are “due and payable.”On October 23, 2006 FASAB issued a preliminary views document on Accounting for Social Insurance (Revised.) This document contains a primary view and alternative view.When the preliminary views document was issued, the six “public” members of FASAB supported the primary view.Three of the four federal members (one member abstained) supported the alternative view.The federal members represent the Congressional Budget Office and, the three FASAB sponsors, the Secretary of Treasury, the Director of the Office of Management and Budget and the Comptroller General, head of the Government Accountability Office.

The Primary View reflected the preliminary conclusion of the majority of Board members that SFFAS 17 is flawed because it fails to recognize the accruing cost of social insurance programs in each reporting period and the accumulated liability for benefits payable at a determinable date under current law.Supporters of the Primary View believe an expense, and a corresponding liability, should be recognized on the statement of net cost when participants become fully insured and thus substantially meet the eligibility conditions for future benefits under the programs.Social Security and Medicare participants would become fully insured when they have worked 40 quarters.The amount to be recorded would be the benefits accrued minus the accumulated taxes paid by each worker.

The Alternative View proposes to maintain the recognition and measurement of expense and liability for Social Security and Medicare program benefits currently required in SFFAS 17. Under that standard the expense recognized for the reporting period is the benefits paid during the period.The Alternative View states:(1) recognition of future social insurance benefits as current expenses and liabilities would disrupt an alignment that allows programs to match costs with results;(2) recognition of future social insurance benefits on the financial statements would diminish significantly the relative size and importance of other expenses and liabilities shown on the financial statements; and (3) given the ability of the Federal Government to change the laws relating to social insurance programs and the unsustainability of current benefit payments with current financing, about which beneficiaries are on notice, amounts of benefit payments are uncertain and not reliably estimable.

The Board received seventy-two comment letters in relation to their preliminary view document. This far exceeded the number of comment letters that the Board has ever received in relation to previous proposed standards. Responders included representatives from budget watchdog groups, employees of governmental agencies, professors, citizens and six current and former members of Congress.

The comment letters may be found at: http://fasab.gov/commentletter.html

Since the beginning of the Social Insurance project four years ago, two of the three FASAB sponsors have been replaced.Former Congressman Jim Nussle is now the director of the Office of Management and Budget and Henry M. Paulson, Jr. is now the Secretary of Treasury.It appears that they agree that only what is due and payable should be reported on the balance sheet.There was discussion on whether the FASAB sponsors even want this project to continue.

Since December 2006, two of FASAB’s public members retired and two new members where appointed by the FASAB sponsors.It is now apparent that there is no longer a clear majority who would support showing a liability on the balance sheet beyond what is due and payable.The majority of members do believe that the federal government should put “sunshine” on the future promises the government has made to beneficiaries.But members’ opinions differ about how these commitments should be presented.

At the September 19, 2006 meeting, Chair Tom Allen steered members away from what he referred to as the “L” word (liability). The focus shifted to what disclosure the Board members believe needs to be highlighted in relation to the Social Insurance commitments.The FASAB staff member assigned to the project was asked to prepare a list of which items could be disclosed.Chairman Allen said then the Board would talk about “geography”, where such disclosure should be reported-on the balance sheet, on a fiscal sustainability report, in footnotes or as required supplemental information.Because a consensus could not be reached on the Social Insurance disclosure the project was placed on a “slow track.”

A related project is Fiscal Sustainability Reporting. Through this project the Board hopes to address one of FASAB's federal financial reporting objectives called the stewardship objective.This objective includes enabling readers to determine whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due.

At the June meeting a FASAB staff member had presented a review the definitions and characteristics of fiscal sustainability from four English speaking countries.It was noted that if the U.S went in the direction of having fiscal sustainability reporting as a requirement of the basic financial report, it would be the first country to do so.The United Kingdom has a sustainable investment rule which states that net debt will be maintained below 40 percent of GDP.Many Board members expressed concern over setting targets instead of standards.

Some of the Board members expressed the need to determine and understand the audience, including its segments, and the best ways to communicate to each segment.Robert Reid, Treasury's FASAB representative, informed the other Board members that his department is working on an easy to use website which would allow the users to access the information desired.

There was concern expressed about the dependency states have on the federal government funding and the risk that the federal government may not be able to sustain funding states’ activities.

At the September meeting a FASAB staff member presented some possible objectives of fiscal sustainability reporting for the Board’s consideration. Some of the FASAB members believe that the social insurance commitments should be a part of this reporting.

Because of this the fiscal sustainability project was placed on the “fast track.” An exposure draft is expected at the next Board meeting, December 4-5, 2007.

Finally the truth is being told by an Illinois constitutional officer. According to various news stories Comptroller Daniel Hynes, the state's chief financial officer, stated that the last four state budgets have been billions of dollars out-of-balanced. This is a financial problem and a constitutional quandary.

The state constitution requires a balanced budget. Does this mean that the Governor and legislature have been passing unconstitutional budgets? Have they been breaking the 1997 Truth in Budgeting Law that requires the budget be balanced according to Generally Accepted Accounting Principles?

Evidence of whether recent budgets have been balanced or not can be found in Illinois' annual audited financial report. According to the last financial statements issued by Comptroller Daniel Hynes' office, the 2006 "balanced" budget resulted in a deficit of $769 million. In July 2004, the legislature passed and the governor signed a "balanced" budget for Fiscal Year (FY) 2005. Two years later, the FY 2005 audited financial statements reported that Illinois' primary government functions ran a deficit of more than $2.1 billion. Financial reports for the prior three fiscal years (FY2004, FY2003 and FY2002) also showed annual deficits of $2.5 billion, $4.1 billion and $4.2 billion respectively.

Governor Blagojevich may have signed unbalanced budgets, but this is practice has not been limited to the current administration. For more than twenty years the State's budgets have been "balanced," yet the state government of Illinois is in a financial hole of more than $44 billion. For decades Illinois governors and legislatures have circumvented the intent of a balanced budget by giving government benefits and services to current voters and members of powerful unions without providing adequate funding. The politicians get re-elected. Future taxpayers get the bill.

In addition to passing a budget, the citizens of Illinois should demand that the Governor and legislature follow the law of the state and pass a truly balanced budget.

To assist in addressing the difficulty in the state budget process, the Institute for Truth in Accounting (IFTA) is calling for greater transparency in the budget calculations.Noted the IFTA’s CEO Sheila Weinberg, “This mess has been building for years. Lack of transparency in the budget process makes it very difficult for the parties to have honest negotiations.”

The IFTA’s research has identified several items that make the budget calculations confusing.These include the underestimation of the cost of government programs, including Medicaid, and the fact that revenue amounts include money borrowed.The actuarially determined cost of the retirement benefits earned and promised to state employees and teachers is not used in the calculation.To explain the budget calculations, the IFTA has issued an educational booklet titled “The Illinois Grande Illusion”, which can be found on its website at:http://www.truthinaccounting.org/pdf/publications/illusionsingle.pdf.

Weinberg points out that the Illinois constitution requires the governor and legislature to pass a balanced budget.This requirement is designed to give the public control over the state budget process and to hold elected officials accountable.The intent of the balanced budget requirement is to eliminate the legislators’ and governors’ ability to provide current voters government benefits and services, while passing the bill on to future taxpayers.

For more than 20 years Illinois governors and legislatures have used what Weinberg calls “political math” to circumvent the balanced budget requirement.She highlights that each year the politicians have proudly claimed they have “balanced” the budget, yet the state is more than $44 billion in debt.According to the last financial statements issued by Comptroller Daniel Hynes’ office, the 2006 “balanced” budget resulted in a deficit of $769 million.

To gain back control of the chaotic budget process, Weinberg says that the public needs to ask questions of the governor and legislators.These questions include the following.Will they consider the budget balanced even if they have to borrow money to pay current bills?Will the state agencies continue to hide their bills, so they are not included in this year’s budget?Will the budget be “balanced” by underfunding pensions?Where will the money come from to pay for new programs and benefits, when the state is already more than $44 billion in debt?How much further in debt will the state be once a “balanced” budget is passed?And, when the governor and legislators finally come to an agreement and hold a press conference to proudly declare success, will it be the truth when they say that they have passed a “balanced” budget?

“The recent corporate accounting scandals highlight the importance of telling the public the truth about corporations’ financial positions,” warns Weinberg.“Lack of transparency resulted in thousands of stockholders and workers losing millions of dollars.We need an honest and clear state budget process, because billions of dollars and the livelihood of millions of citizens are at stake.”

On June 24-25 I made a quick trip to Nashville for the Association of Government Accountants Professional Development Conference. One of the highlights of my trip was a keynote address by Bethany McLean, author and senior editor of Fortune.She gave the audience a perspective of the Enron story five years after its spectacular collapse into scandal and bankruptcy.

I couldn’t write down the parallels to federal government accounting fast enough.Ms. McLean stated that the Enron executives stole from the future until there was nothing left.She said that the prosecutors’ strategy was not about the numbers, but the lies and choices. The executives at Enron choose to lie.They said that the business was in great shape.They never gave the investors the truth about the numbers.They may have followed the accounting rules, but not the spirit of the rules.

Ms. McLean pointed out that the Enron board said that they were lied to.That may have been true, but there were a lot of obvious questions that they didn’t asked.For example, Where was the money coming from?How could it be that the income statement showed large profits, while there were large negative cash flows, including a great deal of borrowings?Another point she made was that even though Ken Lay may have not known the specifics of the accounting smoke and mirrors, it was his job, as the leader of the company, to provide vision and integrity.

When Ms. McLean was finished with her talk I asked her in front of the 1,800 government accountants in attendance, if she had considered writing a book about the federal government and Congress. Listening to Ms. McLean’s description of the Enron’s shenanigans and attitudes, I see the federal and state governments heading down the same road.In fact I think that the federal government and many state governments would already be there, if they didn't have more venues to borrow money, the world, and a larger investor pool, the U.S. taxpayers.

When financial crisis does happen, I predict that the American public will say that they were lied to.This is true.They are told that the Social Security trust funds will last for decades to come.The budget numbers are not related to reality.

But there are a lot of obvious questions that the American people are not asking, because they don’t want to jeopardize their government services and benefits or pay higher taxes.Where is the money going to come from to pay for the hundreds of billions of dollars of deficits where are running?The public knew that the government was in debt, but did not ask how we are going to fund the new prescription drug program.How could we have had surpluses, while the federal debt was increasing?Now only a few people are asking, how we can be cutting taxes, while we are paying for an expensive war?

Just like Ken Lay, the President and members of Congress should be providing the country with vision and integrity.Instead they are using smoke and mirrors to hide the truth about our country’s financial condition.

Do you think that the federal government owes you any Social Security or Medicare benefits?Should the promises made to retirees be put on the government’s balance sheet as liabilities?These questions are currently being debated by the Federal Accounting Standards Advisory Board (FASAB).

Theoretically this is an independent standard setting body, but it is appointed by governmental officials and four of the ten members work for the government.Three of the four federal members believe that only Social Security and Medicare benefits which are currently due should be put on the government’s balance sheet.

On Tuesday, May 23 I will be the first to testify in front of FASAB in Washington, D.C. I will be providing verbal comments on our response to FASAB’s Preliminary Views Document - Accounting for Social Insurance.

Fundamentally, the Social Security and Medicare programs remain premised on the promise that an individual’s “contribution” to the program is held by the Government in trust and then paid out in retirement.These programs to date are not billed to be forms of taxation separated from and independent of the benefits to which one is entitled upon retirement or disability.It is well established that the promise of Social Security and Medicare benefits is a legitimate "social contract."I believe the obligations should be reported as liabilities on the federal balance sheet and included as a costs on its income statement.This reporting would provide the most accuracy representations of the public understanding.

The government officials on FASAB believe that recognition of future Social Security and Medicare benefits on the financial statements would diminish significantly the relative size and importance of other expenses and liabilities shown on the financial statements.This should not be considered negatively.This is a reality citizens need to know.Omitting what currently are monstrous costs and liabilities from the face of the government-wide financial statements grossly distorts the presentation of the Government’s true financial position from the perspective of the constituency from who these reports are most directly useful—the American citizens.This inappropriately shifts the focus away from the most financially significant programs managed by Federal agencies.

From the first time I heard about FASAB setting Generally Accepted Accounting Principles for the federal government, I have been concerned about the Board’s lack of independence.Governmental officials have the authority to appoint members to the governmental standard setting body.I equivocate this to the auditors and accountants of General Motors determining what General Motors will report on their financial statements.During this deliberation of the social insurance standard my apprehension about the Board’s independence has been heightened by the January 1, 2007 appointment of a former federal employee and federal member of FASAB to serve as a non-federal member.

In conclusion I would like to tell you about my experience the last time I testified before this board.On September 27, 2006 Rick Skiba, an IFTA Expert Advisor, joined me in testifying before FASAB on its proposed concepts statement, Definition and Recognition of Elements of Accrual-Basis Financial Statements.Steve Goss, Chief Actuary of the Social Security Administration, also testified that morning.My recollection of his testimony was he stated he did not believe Social Security or Medicare should be recorded as a liability on the federal government financial report.In follow up Questions & Answers, I recall that one of the FASAB members asked Mr. Goss, if he was saying that the federal government did not owe citizens benefits until benefit checks are printed.Mr. Goss said that was correct.

After these testimonies I returned home to Chicago.Two days later I had the opportunity to attend a breakfast where a member of Congress was the keynote speaker.After the member of Congress spoke he was asked about the fact that workers of corporations are losing retirement security because corporations are shifting from defined benefit programs to defined contribution programs.The member of Congress expressed concern that retirees would not be guaranteed a level of benefits under a defined contribution program.Then he stated that this is why we must keep Social Security strong because it is the only “guaranteed” benefit that retirees can count on.

This re-election marketing strategy, which proliferates through the entire Congress, is why the Institute for Truth in Accounting believes that if FASAB does not vote to record Social Security and Medicare promises as a liability on the federal government financial report, then the following measures must be taken:

1)The cancellation of the 7.65% in specific social insurance payroll taxes and related employer payroll taxes;

2)The discontinuation of the use of the term “trust fund” by Government employees and officials, including members of Congress and the Administration, to describe funds that the Government has custody and control of and does not take on a fiduciary responsibility to hold in trust for beneficiaries;

4)A massive, straight-forward education program to inform the American public and their elected officials that social insurance benefits are not guaranteed and can be canceled or reduced at any time.American workers must be told that payroll taxes taken out of their paychecks are forms of taxation, not “contributions” maintained in separate “trust fund” accounts.Members of Congress and the Administration should be the first students of this educations program.Then members of Congress should be required to tell their constituents the truth and stop getting elected by promising the large senior voting bloc Social Security and Medicare benefits.

5)Finally a law should be enacted that would consider it felony fraud for any Government employee or officials, including members of Congress and the Administration, to imply the continuation of social insurance programs and the solvency of “trust funds.”

I have been working on federal budgeting and accounting issues for fifteen years.During that time I have determined that the number that the media and public regularly pay attention to is the deficit number.At the Institute for Truth in Accounting we consider the deficit number to be the marquee number.Within the government’s annual financial report there is a number that corresponds to the deficit number.It is called net costs.If members of FASAB have a problem with calling the Social Insurance obligations “liabilities,” then we strongly urge that these obligations are put them on the balance sheet in some other understandable form.More importantly it is imperative that the increase or decrease in Social Insurance obligations is included in the net costs.This information would empower citizens to hold elected officials accountable for changes made to these programs.

In his budget address on March 7 Governor Rod Blagojevich cited many facts and figures.The problem is the budget’s lack of transparency makes it impossible to verify his facts or his figures.

The Institute for Truth in Accounting is calling for great transparency during the State’s budget process.We have talked to many legislators who have stated that they have had to vote on previous budgets without knowing if the numbers in the budget are accurate.This year more than ever, our Governor is proposing major changes in the tax structure and proposing massive increases in spending.Before the legislature votes on these changes, they (and their constituents) need to be provided with a truthful accounting of how these changes will affect the State’s and its citizens’ finances.The Institute is asking for the Governor to provide to us all with verifiable calculations, including the true costs, both short-term and long-term, of the additional spending proposed.

The Institute is also asking for a verifiable audit of the State’s financial condition.The State’s last financial statements (FY2006) reported a negative financial position of $44.5 billion, but this did not include the liability for post retirement health care benefits owed to State employees.The Civic Committee of the Commercial Club of Chicago has made an educated guess that the State’s is in debt by more than $100 billion.Before additional health care and education commitments are made, the Institute believes that the public and legislators should know how much the State is truly in debt, including the liability for post retirement health care benefits.

One recent success for greater transparency is that for the first time in years, the State Comptroller released the State’s latest financial report (FY 2006), before the budget process began.This year the financial report was issued on March 1, some ten months after the June 30, 2006 fiscal year ended.Last year it took a full year to issue this report, well after the budget process was complete.The Institute believes that the State Comptroller should be required to issue the State’s financial report on or before September 15, two and half month after the State’s fiscal year end, like corporations are required to do.

The Institute is also requesting that the Governor account to the taxpayers how his previous budgets have been announced as “balanced,” yet the State’s financial condition has continued to decrease each year.Our research indicates that by the time Governor Blagojevich took office, his predecessors had balanced the budget each year, but accumulated a $40 billion financial deficit.During his first three years, the Governor proposed and the legislature passed what they called “balanced” budgets.The Institute understands that a balanced budget means that all revenues the State takes in are equal to all expenses the State incurs.Therefore if balanced budgets were passed, then the State’s financial deficit should have remained the same $40 billion.But the State’s audited financial statements indicated the last three “balanced budgets” have increased the State’s financial deficit by more than $4.5 billion to $44.5 billion.

Because in Illinois a “balanced” budget does not means a zero deficit, the Institute is asking the State Comptroller to calculate and announce to the public and the General Assembly an estimate of the deficit that he will report in the financial statements, if the Governor’s proposed “balanced” budget is enacted.

This report provides citizens with a comprehensive and concise grasp on general and financial information about the federal government. The report was developed in conjunction with an Advancing Government Accountability (AGA) initiative.

“The United States Government, A Report to Our Citizens” made its debut recently at the AGA National Leadership Conference.Both this report and IFTA’s “Financial State of the Union” were distributed at the AGA's booth and were then highlighted in a speech given by AGA’s executive director, Relmond P. Van Daniker.

AGA's Citizen-Centric Government Reporting Initiative encourages governments to produce and publish an annual “state of the government” report that is no more than four pages long. Many people at the AGA conference were amazed that the IFTA was able to complete such a report for the federal government. The citizen's reports, designed to be visually appealing, provide understandable information to citizens about the financial condition and performance of the government that answers the question, “Are we better off today than we were last year?”

IFTA’s CEO, Sheila Weinberg, hopes this report will shed some light for all of the confused citizens still in the dark about financial governmental information, because of the inadequate and sometimes misleading data provided by the federal government.

Can the federal government become financially literate? Or, more importantly, can it learn to behave in a financially-literate manner? Reasonable people may conclude that the best answer to this question is “no, it can’t: Abandon all hope, ye who enter here.” That option is not open to me and I hope not to you.

The Federal government is not a limited purpose organization; it has many objectives. But if it is going to take on the responsibility of intervening in a highly complex market of investment and actuarial exposures, it’s a shame that it cannot do this with its eyes open to the financial risks and to structure its balance sheet accordingly.

A zero-sum debate between cash and accrual accounting is not helpful. The answer is both. I would like to see more emphasis on accrual accounting but I wouldn’t hide or do away with the cash budget.

We hoped that some day Congress might take notice of the accrual positions before the start of the legislation season in January, rather than when the horses are already out of the barn a few months later. It would be even better if individual bills had to be scored on their accrual implications.

At BlackRock our portfolio managers have a mind-boggling array of risk measures and credit information when making a decision to buy or sell a single bond or stock. Maybe we could get Congress to consider more than one set of numbers when they allocate national resources.

I would like to see an additional requirement that, prior to Congressional votes, there be an accrual accounting impact statement of any proposed legislation, scored by CBO but consistent with the methodologies used in the Treasury’s Annual Financial Report.